# break even point in revenues break even in units sold selling price per pair 244644

 3-38 CVP analysis, shoe stores. The WalkRite Shoe Company operates a chain of shoe stores that sell 10 different styles of inexpensive men’s shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. WalkRite is considering opening another store that is expected to have the revenue and cost relationships shown here: 1 Unit Variable Data (per pair of shoes) Annual Fixed Costs 2 Selling Price \$30.00 Rent \$60,000 3 Cost of shoes \$19.50 Salaries 200,000 4 Sales commission \$1.50 Advertising 80,000 5 Variable cost per unit \$21.00 Other fixed costs 20,000 6 Total fixed costs \$360,000 Consider each question independently: Required 1. What is the annual breakeven point in (a) units sold and (b) revenues? A) Break-even point in units = Fixed cost/(Selling price per unit – Variable cost per unit) \$40,000 actually 40,000 units B) Break-even point in revenue = Break-even point in units* selling price per pair \$1,200,000 2. If 35,000 units are sold, what will be the store’s operating income (loss)? Contribution per unit = Selling price per unit – Variable cost per unit \$9.00 Total contribution = number of units that are sold* contribution per unit \$315,000 Operating income (loss) = Total contributions of units sold – Total fixed cost (\$45,000) 3. If sales commissions are discontinued and fixed salaries are raised by a total of \$81,000, what would be the annual breakeven point in (a) units sold and (b) revenues? A) Total fixed costs = originally reported fixed costs + the raise in fixed salaries \$441,000 Break-even point in units = Fixed costs/(Selling price per unit – Variable cost per unit) \$49,000 actually 49,000 units B) Break-even point in revenues = Break-even point in units*selling price per pair \$1,470,000 4. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of \$0.30 per unit sold, what would be the annual breakeven point in (a) units sold and (b) revenues? A) Total variable cost per pair of shoes if manager is paid a commission of \$.30 per unit sold = Orginal variable costs + managers commission \$21.30 Contibution per unit = Selling price per unit – Variable cost per unit \$8.70 Break-even point in units = Fixed costs/(Selling price per unit – Variable cost per unit) \$41,379.31 actually 41,380 units sold B) Break-even point in revenues = Break-even in units sold*selling price per pair \$1,241,400 5. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of \$0.30 per unit in excess of the breakeven point, what would be the store’s operating income if 50,000 units were sold? Total revenue = number of shoes sold * selling price \$1,500,000 Cost of shoes = number of shoes*cost of shoes per pair \$975,000 Sales commission if \$.30 per pair*number of shoes sold \$15,000 Operating income Revenue \$1,500,000 Less: Cost of shoes \$975,000 Sales commission \$15,000 Total fixed costs \$360,000 Total cost \$150,000 Operating income \$1,350,000

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